Taxing Issues: September 8-21, 2003

EITC Certification Pilot Set To Launch: The Internal Revenue Service will launch the Earned Income Tax Credit certification pilot program in early 2004.

The new pilot program will allow the IRS to use an integrated approach to address potential erroneous claims by identifying cases that have the highest likelihood of error before they are accepted for processing and before any EITC benefits are paid. The General Accounting Office has identified EITC as a “high risk” area for the government because of the high rate of erroneous payments.

The announcement of the EITC certification program on June 13 included a 30-day comment period that ended in July. After reviewing the comments, the IRS is incorporating a number of suggestions from tax practitioners, social welfare groups, the general public and others.

“The EITC program helps lift millions of working families, especially single mothers, out of poverty each year. But it has consistently been found to have an erroneous payment rate higher than many other government benefit programs. To protect the long-term viability of this critical program, we must ensure that those who qualify receive the credit they are due - but only those who qualify,” said IRS Commissioner Mark W. Everson. “After reviewing many constructive public comments, we have identified a number of steps we can take to strengthen the integrity of the EITC program.”

To make the changes, the IRS will start the program in the 2004 filing season. The IRS will ask 25,000 claimants to certify when they file that the eligible child resided with them for more than half a year, as required by law.

In addition, the IRS also said that it would expand efforts to discover erroneous payments to taxpayers who under-report income to claim the credit. Next year, the IRS will expand its compliance efforts involving at least 300,000 taxpayers who claim the credit but failed in the past to report all of their income. These taxpayers may not be eligible because the EITC has an income cap. This group will also include EITC claimants who misrepresent their filing status.

NYSSCPA Argues Against Extending E-Filing Deadline: The New York State Society of CPAs and its Tax Oversight Committee Task Force are urging Congress not to extend the electronic filing deadline, fearing it could confuse taxpayers and cause additional problems in the process.

The Taxpayer Protection and IRS Accountability Act of 2002 includes a provision to extend the tax deadline to April 30 for individuals who file electronically. The NYSSCPA wants Congress to consider the unintended effects of this provision, which the organization feels would be counterproductive and will not encourage additional use of e-filing by CPAs.

“Although the NYSSCPA encouraged the use of electronic filing, an extended deadline will not encourage this process, and instead could be counterproductive,” said task force chair Maryann Winters. She is also a CPA with Syracuse, N.Y.-based Baasch & Winters CPA.

According to a four-page report that the Tax Oversight Committee issued to Congress, the NYSSCPA strongly believes that the idea that an April 30 deadline “will give taxpayers an incentive to file electronically because they can delay payment of taxes for an additional two weeks, gaining thereby the time value of their money for that time period, is faulty.”

The report also stated that:

● Unless all the states agree to change their April 15 deadlines to coincide with the federal changes, taxpayers and practitioners will not gain any advantage because most state filings use information from the federal return.

● There are occasions when e-filed returns are rejected through no fault of the taxpayer or the CPA. These are situations that cannot be anticipated, such as rejection because another taxpayer has previously filed a return using the taxpayer’s Social Security number or a dependent’s number.

● Any taxpayer who currently pays estimated taxes based upon covering their prior year’s tax will be unable to take advantage of the extended due date because they will not know the amount of the prior year’s tax to cover.

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